M&A: How to Avoid Five Common Pitfalls

A typical transaction can be a turbulent process with a host of deal breakers threatening to prevent a transaction from completing. Any wrong move can at best cause delays and at worse completely scupper the deal. Whilst completed deals grab the headlines, there are many more that fail for a variety of reasons.

Deal Fatigue

It is often said that the longer a negotiation goes on, the less likely a deal is to complete. There can be a variety of reasons for delays and these can often be avoided. Common issues are; being complacent early on in the process; providing the buyer with poor quality information; a lack of clear communication between the parties and the use of inexperienced advisers. These can be mitigated by extensive preparation, being clear and decisive in communications and through use of knowledgeable and experienced advisers.

Hidden Issues

If unexpected issues are brought to light during the due diligence process, a buyer’s confidence can be severely damaged. Before considering a sale, a business should identify, well in advance, any potential sticking points. Examples of these may be through securing the underlying contractual position with key customers or ensuring that any IP is owned by the company and not a third party. The failure of the seller to be open and transparent around these matters can lead to price reductions, the abortion/delay of the sales process and increased costs to resolve the issues.

Cold Feet

Particularly with owner managed businesses, a company is often the owner’s life work. It is particularly common that when selling a business the prospect of change can cause anxieties and personal stress, not only for the owner, but also for the management team. Before deciding to enter the sales process it is important to be clear about the motivations for sale and have well-defined objectives with actions to complete within a set period of time. Ideally the management team will be on board with the process, reducing scope for indecision part way through the transaction.

Cultural Gaps

Cultural differences between parties can often cause huge obstacles, even if everything works perfectly on paper. Often, company culture is deeply rooted within certain dynamics, hierarchies and allegiances. Before committing to a deal it is essential to consider employee backgrounds, the general workplace culture and the chemistry between the two parties. If it becomes clear that there are major differences, then this may have a significant impact on the transaction.

Bad Luck

In some cases, even with the best planning in the world, there is nothing that can be done to prevent a deal collapsing. Forces external to the transaction may change the deal dynamic; there may be unexpected changes to a regulatory framework, or a key staff member may unexpectedly leave causing the buyer to have second thoughts. There is little that can be done in many of these cases, but extensive planning and skilful negotiations can shift the odds in your favour.

Whether you are looking to make an acquisition, considering selling or restructuring your business, or contemplating raising funds, the DTE Corporate Finance team can help you minimise the associated risks and maximise the returns.

To arrange an informal chat, please contact a member of the DTE Corporate Finance team on 0161 819 1910.